Axiom European Financial Debt Fund (Ticker AXI)

This fund invests in bank and insurance regulatory capital. Tier 1, Tier 2 and Additional Tier1. So, broadly Prefs, PIBS, Perpetuals, Subordinated debt and CCDS. All the stuff that’s getting harder and harder for us to by as retail investors as the minimum size on new issues is now usually 100k or 200k.

At the moment I like regulatory capital for two reasons.
Firstly when we had the meltdown in the financial markets the central banks stepped in to ensure an orderly market and to support the banking system. Although there might have been consequences for regulatory capital, actually the opposite happened as dividends were suspended, thus strengthening the banks balance sheets and making regulatory capital less risky. There is nothing to say the central banks may change their philosophy on this next time but I perceive these assets as less risky than I might otherwise have done.
Secondly most of the instruments have short maturities. 70% of the investments mature in the next 5 years so as interest rates rise, existing instruments will get replaced with new instruments at higher interest rates. I wouldn’t say it’s inflation protection, but it’s a good start.

I particularly like AXI because it’s a proper managed fund. If you read through the monthly factsheets you will see they are active in the market. Far more active than funds like NCYF or BIPS. The downside is the fee. 1% plus 15% performance for returns over 7%. Out of interest they recently bought PFG bonds on the fall to the low 90’s but have since sold them as Amigo lost their court case. I’m particularly pleased about this as the Provi outcome seems a bit risky to me.

Their factsheet can be found here

Edison have a research note which explains AXI far better than I ever could:

Now, here’s the bit that I think is worthy of further consideration. It’s currently 92.6p to buy, with no stamp duty and has a NAV of 103.0p. That’s a 10.1% discount to NAV. Dividend is 6p giving a yield of 6.5% which puts it above the running yields on most of our popular Prefs and PIBS and subordinated bonds, mostly I suspect because retail investors are bidding up the prices of the few instruments left available to us, whereas AXI access the 100k and 200k instruments. For example,AXI’s third largest holding is the 9.75% IPF whereas we only have access to the 7.75%.

From my perspective holding an appropriate amount of regulatory capital in my portfolio is worthwhile and this is the only Investment Trust which is 100% regulatory capital. It’s getting harder and harder to buy direct at a decent yield and AXI provides me not only a better return but it seems I can buy it currently at a 10% discount and let someone else to do the work for the next 40 years, instead of scrabbling around desperately trying to find something with a decent yield.


  • Thanks for this JD very interesting reading. Might be for me-maybe 2-3 pct of portfolio. I suppose the trick is just getting the price right, always easier said than done.
  • Yes thanks for that. Fee indeed stiff, but bought a few at 93p, to see how they do over time.
  • Picked up some more this week earlier in the week and some more late on Friday on the 1SBB news. 1SBA is their 8th largest holding which was not part of their top 10 in January but was by March. Somewhere they picked up 3m shares or so out of a total of 22m.

    I wasn't really very excited about it at the time as 1SBA's coupon was around 3.5% and this fund has a target return of 7%, but usually does 6% and this trade didn't seem right to me. I don't know what they paid but assuming they had been accumulating for some time something around 90p, maybe lower. So a 10p capital gain and 6 months coupon is a great result. I'm more than happy to let this lot do the work for me. They seem more skilled than me.
  • A comparison of the leading debt funds:

    AXI NAV 103.92p, buy price 92.86p, Discount to NAV 10.6%, Yield 6.5%, 3 year performance 8.1% pa

    HDIV NAV 93.2p, buy price 86.12, Discount to NAV 7.6%, Yield 5.1%, 3 year performance 8.1% pa

    BIPS NAV 195.49p, buy price 187.4p, Discount to NAV 4.2%, Yield 5.9%, 3 year perfomance 7.4%

    SMIF NAV 93.36p, buy price 96.88p, Premium to NAV 3.8%, Yield 6.3%, 3 year performance 7.3% pa

    NCYF NAV 51.23p, buy price 55.15, Premium to NAV 7.7%, Yield 8.1%, 3 year performance 5.7% pa

    On the basis of actual returns AXI and HDIV come out ahead with NCYF lagging. NCYF has the stand out yield but the worst performance. HDIV&BIPS have investments with longer duration so if interest rates rise quicker than expected the other 3 may do better relatively.

    NCYF has a limited number of equity investments (REITs etc) and some with bond like characteristics. AXI is bank and insurance debt only.

    I hold in order of size AXI, NCYF, HDIV, BIPS.

    AXI and HDIV because the discount to NAV is so tempting along side the best performance. I anticipate the discount to NAV will close over time on these two giving me a capital gain plus the dividend stream. NCYF because despite it's poor performance compared with the rest over 3 years, it's 20 year track record is great and is reflected in that it nearly always sits at a 5% premium to NAV. BIPS because it's slow steady, reliable. I cannot see the point in SMIF, might as well take AXI which is 15% cheaper for better outcomes or HDIV which is 12% cheaper for better outcomes and less risky investments.
  • I picked up some more BIPS this morning at just over 183p this morning which was very nice.

    Two other bond funds to think about are EJFI and NBMI. I hold both.

    EJFI massive 21.5% discount to NAV although it used to be more. 8.1% yield based on today's buy price. Mostly exposure to US bank and insurance debt. Priced in GBP but assets in USD so exposed to FX moves. Significant gearing and illiquid most of the time.

    NMBI. 6.5% discount to NAV and 5.2% yield. Probably not a raging buy any longer although 66% of the debt it's invested is floaters (i.e. charges base + fixed percentage) so I like that as I think base rates will rise in the medium term. Debt is also very different from all the other candidates (only 11% in financials) so I've not got linked risk which I like too. Debt includes Carnival and American Airlines as examples so not a widows and orphans fund. Loads of liquidity. Monthly dividend if that's your thing.
  • ...and now to add to our woes about online trading of bonds,PIBs etc... Interactive Investor have now made AXI only available to sell

    You can still sell on line though !

    Life gets teejus don't it
  • You can buy it through Hargreaves L though
  • This is the third time I have been unable to trade a fairly standard stock through II in recent months. I asked why this one was unavailable and was told (this is copied and pasted ):
    "Unfortunately, we are unable to trade any stock that are not suitable to
    for retail investor as we are a retail investment platform and this is set out
    by the fund manager and is stated within the document they produce"

    The Key Information Document says :
    "The Company is offered to investors who may have basic or no knowledge and experience of investing in financial markets and also experienced investors and is intended for long-term investment. "

    I am awaiting II's response to the KID. I am a recently acquired II customer - and I am finding them really annoying!
  • I notice on Inters' web site the other day they are offering £100 for people to return to them.!! I wonder why !!!
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